What about Electronic Filing
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If the IRS has its way, we will all be filing our returns electronically within five years. Electronic filing –the system that zaps your tax information almost instantly to IRS computers over telephone wires –is now available nationwide. The government hype is enormous: electronic filing is convenient, accurate, and quick. You refund will arrive in three weeks or less (compared to five to eight weeks the old paper way). The money can be deposited directly into your bank account.
One thing the IRS doesn’t tell you: Electronic filing will cost you. The fact is, you cannot file electronically without the help of a person or company approved by the IRS. The cost varies from $25 to $100. (To find an authorized transmitter in your area, call the IRS at 800-424-1041). If you use one of the leading tax software packages, you can send your return information via modem or on a disk to an authorized service, which, for a fee, will file your return electronically with the IRS.
Is electronic filing worth the cost? Generally, if you compare the cost versus the financial benefit of a speedy refund, the answer is no. Electronic filing is simply not economical for small refunds. Although $25 may seem like a modest fee, if you figure how much your money could earn in the bank during the extra two to five weeks you have the use of your money, you need a refund of $4,000 or more to break even on the cost. Paying to file electronically makes no sense at all if you owe tax. You still have to mail a check for the balance due to the IRS by April 15, along with a statement showing that the return data was sent electronically. About the only reason to file electronically is to do the IRS a good return. The process saves the agency money on processing and storing returns and is less error prone than conventional proper returns.
Electronic filing has led to a booming business in loans against your tax refund. The tax preparer will give you a check for your refund amount minus fees within a couple of days if you file electronically. Unless you desperately need the money, though, do not bite. These quick refunds are really short-term, very expensive loans. The fees, which range from about $30 to$65, get you the use of your money only for an extra two to five weeks. If you pay $40 to get a $400 refund loan, for example, you’re paying more than 100% interest on what amounts to a three-week loan. Even if you need the money immediately, you should be able to find a cheaper source of credit.
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